Profit Through Ethics on Corporate culture

Does your business define, measure and monitor its organisational culture?

Question collaborators: Engage for Success, Starboard

No 10 minute read

Profit Through Ethics Ltd (‘PTE’) does not currently define, measure or monitor organisational culture. We would like to learn how to appropriately define, measure and monitor it going forward.

While we feel that we do have a distinct culture, it is largely undefined and uncodified. As such, our primary answer to this question is NO. This stated, we do meet a few of the answering requirements for answering YES to this question, and make other points besides, in the answer which follows. Providing this answer to this new question has required us to think further about what we do, how and why. This in itself has been useful for the team to further reflect  on and discuss our culture.

While founded in 2003, for all intents and purposes PTE remains a start-up. The founder, Michael Solomon, is currently the sole director, and there is no board. There are six people who constitute the workforce of the company although we are only roughly three full time equivalents, see here (http://responsible100.com/about/team/).

We aim to foster a healthy, positive culture in what we do, and how.  All the R100 team, when all present in the office, work on the same large desk. The close-knit nature of our office operations means that, despite Michael’s significant influence as founder and director, there is fluid and collaborative approach to how we work rather one where ‘tone from the top’ is handed down.  Each person within the team has a voice; the opinions and knowledge of clients and supporters are highly valued and actively encouraged. This approach has shaped the development of the questionnaire, the development of the R100 process and in the evolution of the company.

As a start-up, our aim is to disrupt markets with new products and services and to scale rapidly. Despite the considerable challenge of creating and launching a transparency and accountability initiative for business, PTE continues to attract clients, partners and investors and, as a result, develop and improve Responsible 100 (‘R100’). We are accountable to these key stakeholders in particular. And we welcome the influence that they have on what we do and how we do it.

PTE operates R100 as a business tool and works with a variety of companies, NGO’s and campaign groups to benchmark corporate performance on a range of pressing social, environmental and ethical issues. In describing their responsibility practices by answering the set of questions that we have co-developed with our partners, we enable businesses to set out their values and demonstrate how they are manifest in the policies and practices they pursue. We are highly attuned to how policies and practices impact on and are influenced by culture, and, in turn, how culture informs an organisation’s policies and practices.

We are very interested in the role and purpose of culture in organisational success. We believe that, in an increasingly volatile and uncertain world, it is essential that businesses understand, manifest, and clearly articulate their values. We believe we can play an important role in helping companies to do this.

The R100 website provides profile pages for businesses where they may set out the following:

  • Business Vision

  • Business Mission

  • Business Aims & Objectives

  • Business Philosophies and Beliefs

  • Business Values

PTE uses its profile page on R100 to set out its Business Vision: Business balancing its pursuit of profit with the interests of society. We also set out Business Aims & Objectives and our Business philosophies and beliefs, see here http://responsible100.com/business/profit-through-ethics/

We first considered organisational values and those which were of particular importance to us around eight years ago. Michael, Clare and the various interns who were part of the team back then spent a considerable amount of time reflecting on our personal values and those which pertained to our work. After a series of rounds of assigning our individual ‘importance scores’ to a list of 200 or more values and removing those considered to be least importance to the group as a whole, we whittled the list down to six core Business Values. They are: openness, honesty, accountability, fairness, innovation and contribution.

Many years since this exercise was completed, these values still seem right. We are open and honest about what we do and how we do it. We readily admit to not having our product and service offerings launch-ready, and identify where additional work and investment is required. We give very candid answers to the R100 questions we have answered and published. We are accountable to a whole host of stakeholders, and we act as a convener and broker to many different organisations in the creation, management and development of R100. We act fairly with one another and with our stakeholders. We recognise that, by not acting fairly, it is very difficult to justify and explain what you do. As such, we regard fairness as central to responsible behaviour and to being able to be open and honest.

Similarly, we regard contribution, beyond that of generating a financial return to shareholders, to be a vital component of responsible behaviour. We believe businesses should be at pains to show how they are fair, and show how they contribute, to maintain the privilege of public licence to operate and to maintain the privilege of being able to make and distribute profit whilst at the same time limiting liability. We regard innovation as the key to the success of business. We see innovation as vital to the ability of business to help create and be part of a better world, to deliver the goods and services people rely on at the right price and quality, while minimising negative impacts on people and planet, and maximising positive impacts. To these ends, we seek to be innovative ourselves, and to empower and enable others to innovate for the common good through R100.

Our Company Code of Practice, which all new hires are required to read and which all team members occasionally re-read and refer to, sets out, among many other things, the importance of building strong relationships with our clients, partners and other stakeholders, and ensuring a healthy level of accountability and trust exists between all parties.

We consider our business culture to be a ‘work in progress’, one where clear definition of values and mission shapes daily working practice but we also recognise the importance of review, reassessment and refreshment in maintaining a robust ethos and always seek new ways to do this.  We are excited about the prospect of being able to use new tools and processes to measure and monitor our organisational culture in the near future.

Evidence suggests that corporate culture is not given the prominence it deserves: only 14% of FTSE100 businesses discuss their culture (according to research by Black Sun). However, corporate culture is of critical importance, it affects businesses from top to bottom: what they do, how and why.

The necessity for a broad, all-encompassing definition of corporate culture was the focus of a recent collaborative study undertaken by the FRC and partners. In their report (Corporate Culture and the Role of Boards, July 2016), the research indicates that corporate culture is a source of competitive advantage and the foundation of how a company approaches risk. They regard organisational culture to be a key determinant of how businesses approach any social, environmental or ethical issue, and argue that ignoring it can lead to significant financial and non-financial risks. Given that culture impacts so significantly on how a business operates and how it relates to and impacts upon wider society, businesses should expect scrutiny regarding the definition, development and monitoring of their culture.

A company’s culture may dictate how its staff is treated, how consumer and other stakeholder interaction is carried out or how a company manages its approach to risk. Culture is crucial to understanding how employees perceive their work and interact with their peers and employers, and to successful employee engagement. However, culture can no longer be regarded as a workforce-specific phenomenon only.

Given the abstract nature of ‘culture’ and the difficulty in providing a quantifiable definition, it is often reduced to ‘beliefs and values’. The real measure of the culture that is in place is the accumulated behaviours of people from across the organisation, which jointly not only delivers performance, but also demonstrates embedded attitudes, i.e. 'the way we do things around here'.

There is no 'right' or 'wrong' culture for an organisation to adopt; it is the role of its leaders to define what is most appropriate and suitable for their organisation. Importantly, this can and does change over time as its leaders, the organisation itself and its business environment change. The aim of defining a required culture is to support the delivery of the agreed business aims and objectives and, as such, there is no single culture definition that every organisation should adopt. The key is that it must link to what the organisation is trying to achieve, creating clarity for everyone across the business, thereby informing and influencing people's behaviour in carrying out their every-day duties. The better an organisation defines this cultural profile, then manages activity against it, the more likely it is that the culture will in reality become the 'norm'. Through this, it is then more likely to support the delivery of the organisations objectives.

Often there is an attempt to embrace this into a single phrase or short soundbite, such as "putting the customer first" or "a winning culture", which, whilst creating a clear focus, usually never describes the full profile of the culture that the leaders actually want for their organisation. If the culture is defined or understood solely by a single item like this, all sorts of anomalies are likely to occur when people interpret it in their own way. It is likely that the 'license to operate' and hence the sustainability of the organisation will be at risk, as such a license increasingly requires a wider range of issues to be addressed.

Directors should lead by example and ensure that good standards of behaviour permeate throughout all levels of the organisation. In addition to the values and beliefs articulated by a company at the senior management level, culture also includes the actual policies and processes of a company, and the nature of the interaction between the people who implement the policies (employees) and the people who develop them (owners/managers). Therefore, culture must be embedded within the company’s purpose, strategy, and business model.

EY considers corporate culture to have 4 ‘architectures’. In its June 2016 report, Governing culture: practical considerations for the board and its committees, EY conceptualises culture as having four key components: political, social, performance, and organisational. The political component entails the distribution and balance of strategic power within the company. The social is the nature of interaction between all stakeholders. Performance sees how external economic and risk factors influence behaviour. The organisational demonstrates how internal rules, practices, and processes influence attitudes. Other more complete, holistic typologies of organisational culture, which also recognise that the prevailing organisational culture of a company influences every facet of its operations, are offered by - among others - The Institute of Business Ethics, and the Chartered Institute of Independent Auditors.

To remain appropriate, effective and fit-for-purpose, corporate culture must be measured. As with definition, monitoring the abstract nature of culture is difficult. A helpful though indirect approach is to consider ‘proxy’ indicators that reflect a variety of functions across the business. For example, monitoring employee turnover, levels of sickness related absenteeism and customer satisfaction scores could illuminate whether there is a potentially unhealthy culture within a company. In addition, instances of whistleblowing or other grievances may indicate problems. Finally, monitoring organisational culture, though difficult, is vital; an unhealthy culture can take years to reverse and ongoing surveillance allows senior management to make early changes if problems are detected.

Culture

An organisational ‘culture’ is the collective ideas, customs and behaviours of an organisation or company. As it can be difficult to identify such an abstract concept, it is helpful to think of culture as the articulated values or beliefs of a company. A company’s culture does not just refer to interactions between individuals, but rather embodies all elements of what a company does, from the boardroom through to day-to-day operations. Culture is a key component in any business, influencing the strategic direction, decision processes, response to risk, management and all business functions. It may be informally categorised as ‘the way we do things around here.’

Core values

‘Core values’ are principles that guide all of a company’s actions; highlighting an ultimate set of behaviours and skills. A company’s values lie at the core of its culture.

Employee engagement

‘Employee engagement’ is a workplace approach which hopes to produce conditions in which all members of an organisation are able, and feel motivated and incentivised, to give their best each day. Effective employment engagement strategies ensure that the goals and values of organisations and its employees are aligned, leaving staff with an enhanced sense of purpose and wellbeing.

Employee voice

An ‘employee voice’ is heard when an organisation sees its people not as the problem, rather as central to the solution, to be involved, listened to, and invited to contribute their experience, expertise and ideas. Employee voice exists where the organisation has put mechanisms in place to enable it to have an ongoing conversation with its staff, in different ways, to ensure every voice is heard (source: Engage for Success).

Engaging managers

'Engaging managers' are those who focus their people and give them scope, treat their people as individuals and coach and stretch their people whilst building strong relationships (source: Engage for Success).

Internal auditing

‘Internal auditing’ is a catalyst for improving an organisation's governance, risk management and management controls by providing insight and recommendations based on analyses and assessments of data and business processes.

Proxy measures

‘Proxy measures’ are indirect measures of the desired outcome which is itself strongly correlated to that outcome. It is commonly used when direct measures of the outcome are unobservable and/or unavailable.

Direct measures

'Direct measures' means that one specific variable is measured without the additional measurement of any intervening variables, or proxy measures. A direct method of measurement removes any interpretive linkage needed between the proxy and the variable of interest.

Answering YES

All Businesses MUST

Describe the key elements of their organisational culture

Confirm that they monitor organisational culture on an ongoing basis, and describe how this is done

Describe what policies and practices are in place to develop organisational culture

Explain who in the business is responsible for monitoring and influencing organisational culture, including individuals and departments

All Businesses MAY

Explain how their culture is evident in day-to-day practices and processes

Explain how the culture differs across different areas of the organisation

Set out their defined values and purpose and explain if and where those are made public (e.g. via a website)

Give examples of how board members and senior leaders act according to the defined values

Explain whether they consider corporate culture when entering into business relationships with other firms, e.g. investment, suppliers

Explain how employees’ opinions are taken into account

Describe if and how the business aims to influence the culture of other organisations

Note any negative effects of the company’s culture

Explain any future plans on organisational culture

Explain any further relevant information

Answering NO

All Businesses MUST

Explain why they do not or cannot answer YES to this question and list any mitigating circumstances or any other reasons which apply

All Businesses MAY

Indicate any relevant practices and policies, even if they do not fully meet all the requirements for answering YES

Mention any future plans

DON'T KNOW is not a permissible answer to this question

NOT APPLICABLE is not a permissible answer to this question

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